Deal-making in the Indian Hospital Segment booming

Overview

The hospital sector is undergoing a rise in dealmaking, with KKR paying $400 million for Healthcare Global. This pattern demonstrates the industry’s increasing investor interest, which is being fueled by the expanding need for high-quality healthcare services.  The sector has grown significantly due to a number of factors, including medical tourism, government assistance, and rising insurance coverage.

The healthcare industry in India is humming with frantic negotiations.  In the most recent of the major transactions that are bringing major players into the industry and consolidating it, KKR, a global private equity and investment firm based in New York, paid close to $400 million to acquire a controlling interest in Healthcare Global (HCG), a leading cancer care hospital chain, from private equity peer CVC Capital Partners. After one of its largest payouts in India left Max Healthcare two years ago, KKR returned to the industry last year when it acquired Baby Memorial Hospital.

Deal making in the Healthcare Sector

In recent years, India’s hospital industry has seen a boom in deal-making, with hospitals now accounting for the majority of FDI, according to a December TOI report.  Hospitals received $1.5 billion, or 50%, of all foreign direct investment (FDI) in FY24.  Hospitals’ proportion of healthcare FDI has more than quadrupled from 24% in FY21 and has been increasing from 43% in FY20, indicating its increasing relevance. This is a significant increase.  Alongside the historically favored pharmaceutical industry, the pattern also shows a growing investor preference for hospitals.

According to a senior executive of the European investment bank Rothschild & Co., the robust private equity interest in India’s healthcare services firms is a very reliable sign of the multi-decade growth potential present in the industry. Hedley Goldberg, partner and worldwide head of healthcare services at Rothschild & Co., recently stated that an increase in interest is anticipated as foreign businesses assess the market and become more accustomed to the domestic environment.

Large Indian companies are also drawn to the healthcare industry in addition to a number of private equity investments. Although a number of corporations, like Tata, Birla, and Hinduja, are involved in the healthcare industry, none have established a substantial presence throughout India. However, the Bajaj Group is getting ready to enter the healthcare industry by establishing a network of hospitals in the nation’s major cities. It has set aside Rs 10,000 crore as an initial investment, according to Bloomberg.

Reliance Industries, owned by billionaire Mukesh Ambani, paid Rs 375 crore a few months ago to acquire Karkinos, a technology-driven healthcare platform with a cancer focus.  Under the Insolvency and Bankruptcy Code (IBC), Reliance purchased it.  During the Covid-19 pandemic, hospitals in particular saw significant growth in the healthcare industry.  However, many independent hospitals found it challenging to maintain their operations as the situation improved. Two groups of bidders have shown interest in these hospitals: those who are already in the business and looking to grow, as well as those who wish to turn these organizations around before they are sold to another party.

Prominent healthcare organizations, such as Manipal Hospitals, Apollo Hospitals, and Fortis Healthcare, have been making significant investments in key areas by purchasing both new and old buildings for greenfield projects. These purchases assist healthcare providers reach high-demand areas with inadequate medical infrastructure in addition to enabling them to swiftly develop their operations.  Last year, Manipal Hospitals, a division of Temasek Holdings, paid Rs 415 crore for a five-story hospital complex in the western district of Andheri, Mumbai.

Indian Healthcare Sector: A sweet spot for investors

The Indian hospital and diagnostic industry’s market capitalization has risen ninefold from Rs 37,500 crore in FY20 to Rs 3.5 lakh crore, revealing that the industry has attracted significant investor attention during COVID-19.  The growth has been driven by a combination of improved pricing, expanded insurance coverage, and shift towards more advanced surgeries, including transplants. The shares of major hospital chains such as Apollo Hospitals and Max Healthcare performed well in the stock market.  The large underserved rural market beyond urban areas, increased disease incidence, and growth in insurance coverage are the key growth drivers of the industry. The sector is highly attractive to investors as hospital chains are putting more money into growth, which is projected to grow at a rate of 12% per year in the next three years.

Need for more beds

India’s healthcare sector is being led by a rising number of lifestyle diseases and the requirement for affordable treatment. Seven listed hospitals will increase 14,000 beds in the next three to five years, supplementing the 22,000 extra beds in private hospital chains, as per a report by HSBC Global Research. The WHO states that India currently has a very low bed availability of approximately 16 per 10,000 individuals, and even with these augmentations, there will not be beds to spare. Over the next five to seven years, India will need to have an additional 100,000 beds to meet the growing healthcare demands of the nation, particularly as non-communicable diseases such as diabetes, cancer, and cardiac ailments increase.

Budget 2025 incentives

Healthcare and industry professionals praised the Union Budget 2025-26, which was released in February, for its emphasis on developing a patient-centric environment and reinvigorating medical tourism.  ‘Heal in India’ and medical tourism would be pushed in collaboration with the business sector, according to Finance Minister Nirmala Sitharaman.  According to her, it will be supported by simplified visa requirements and capacity building.

The image added is for representation purposes only